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Accident Compensation Cases

Murray v Attorney-General (EMC, 09/07/02)

Judgment Text

GODDARD CJ (reserved):
Mr and Mrs Murray (“the plaintiffs”) and the Inland Revenue Department (“the defendant”) are both dissatisfied with the determination of the Employment Relations Authority, or parts of it, in their case. With their consent embodied in a ruling1
| X |Footnote: 1
Ruling dated 11 April 2002. 
under reg 21(5) of the Employment Court Regulations 2000, the Court has heard their challenges de novo. This means that, again with the parties' consent, the Court heard the personal grievances of Mr and Mrs Murray as if they had not been heard before and there was only a passing reference in the course of the commendably brief hearing to the determination. However, mindful of the Court of Appeal's instruction in this area,2
| X |Footnote: 2
See Coutts Cars Ltd v Baguley unreported, 21 December 2001, CA102/01. 
I have not deprived myself of the benefit of considering the content of the determination which was required to be and was annexed to each statement of claim.3
| X |Footnote: 3
Employment Court Regulations 2000, reg 7(2). 
Still on the subject of formal matters, the name of the defendant was, on its counsel's application without opposition from the plaintiffs, changed to the Attorney-General in respect of the chief executive of the Inland Revenue Department instead of (variously) the Commissioner of Inland Revenue and the chief executive, Inland Revenue Department. 
The facts 
Mr and Mrs Murray were each employed by the defendant in the capacity of customer services officer. They were so employed following an exhaustive selection and contract formation process which I will describe later. Mr Murray's employment commenced on 30 October 2000 and Mrs Murray's on 8 January 2001. They both started working at an initial salary of $28,500 which, in Mr Murray's case, was increased to $29,500 after he had completed training. Mrs Murray was employed at the same initial salary but had not completed her training when the employment of both the Murrays came to a sudden end. They were suspended late on 19 March 2001 and dismissed on 22 March 2001 following disciplinary meetings on 20 and 22 March 2001. The defendant took the view that it was entitled to dismiss them summarily but it elected to give them 2 weeks' notice on compassionate grounds. 
Before the Authority both the Murrays alleged that their dismissals were unjustifiable and, in addition, Mrs Murray claimed that her suspension was an unjustified action to her detriment. Mr Murray initially claimed reinstatement (abandoning that at the hearing because he has become a full-time university student), and each of them claimed reimbursement of lost wages for differing periods, and compensation of $15,000. The Authority dismissed their claim in respect of the dismissals but awarded Mrs Murray $1,000 on account of the suspension. The Murrays contest the result of their dismissal grievance, while the defendant challenges the Authority's decision to condemn Mrs Murray's suspension as an unjustifiable action. 
Very fairly, the Murrays' managers have acknowledged that there were no issues in relation to the performance by the Murrays of their duties; on the contrary, they were well liked and fitted in well. Also very fairly, the defendant acknowledges that the Murrays gave honest and proper answers to all questions put to them during their rigorous selection and initiation processes. 
Their employment came to an end in the following circumstances. On 19 March 2001 the Murrays told their managers at a meeting (Mrs Murray may have told her immediate supervisor a few days earlier) that they needed time off work on 27 March 2001. The reason for the meeting was that rosters for the call centre in which the Murrays were employed were set one month in advance and, while time off might be had without formality before the rosters were set, once they had been, a good reason needed to be advanced before the time off would be granted. The plaintiffs' good reason was that they had both been summoned to appear as defendants in the District Court at Porirua sitting in its criminal jurisdiction. They were charged with offences under the Crimes Act 1961 and the Social Security Act 1964 of a kind which are generally or popularly known as benefit fraud. They said that they intended to plead guilty. They may have added that the prosecution was, to them, unexpected as they had already made a clean breast of their offending and made arrangements to repay the money that they admitted they should not have received. Anne-Marie Cranney was the human resources adviser at the Wellington business call centre to whom these disclosures were made. She felt that she needed to report them to Valerie Price who was the team manager for the Wellington call centre. Ms Price felt a need to meet with the Murrays to discuss the issue. After taking some advice, she prepared letters of suspension headed up “Invitation to a meeting”. By the time they were ready, Mrs Murray had already finished her shift and gone home. Ms Price admits quite openly that she had already decided that suspension was a necessary precaution. Ms Price telephoned Mrs Murray and read the letter to her. She then asked Mrs Murray whether she understood what she had been told and whether she wished to discuss anything. Mrs Murray indicated that she did understand and had no comments to make and would come to the meeting the following day. She agreed with Ms Price's suggestion of giving a copy of the letter to Mr Murray to take home with him. 
The Authority found that Mrs Murray gave evidence that she was shocked to be rung with such news by a person she did not know or whom she could not remember knowing. Ms Price also had a discussion with Mr Murray who had not finished work. In his presence she read out to him the same letter; before doing so she asked him whether he would like to arrange for a representative to be present because the matter was being treated seriously but he declined that offer twice, saying he would prefer to deal with the matter himself. The text of the letter read to both is as follows: 
It has been brought to my attention your impending appearance before the Court for alleged inappropriate benefit claims. 
The Department's Code of Conduct sets out the standards that all employees are expected to follow. Specifically the Code of Conduct refers to specific behaviours likely to bring IRD into disrepute. 
That being so, I require you to meet with me on Tuesday 20 March 2001 at 2.30pm in the HR Adviser's office. Present at that meeting will be Maire Murray and myself. You are strongly advised to have a representative or support person with you at that meeting who can provide you with support and guidance. If this time is not suitable, please contact me immediately to arrange an alternative time to meet. 
At this stage I will not be drawing any conclusions about the issues until I have met with you and heard your explanations and comments. The information gathered from this meeting, however, may result in disciplinary action being taken including your potential dismissal from this organisation. 
Due to the serious nature of this investigation I have determined that it is appropriate to immediately suspend your employment on full pay until such time as all of the facts can be ascertained and an outcome is reached. This course of action in no way pre-empts a potential result of my investigation into this matter. ”
When asked whether he had any questions regarding the contents or the process, Mr Murray (who is Australian) replied “No thanks, I understand that mate”. Ms Price then asked Mr Murray to take Mrs Murray's letter home to her. Mr Murray wanted his team leader informed and this was done, after which he urged the three managers to cheer up, saying that he was very positive and did not want others to feel down about what had occurred. Ms Price told him that the matter was serious and it was not appropriate for her to take it lightly. Mr Murray handed in his security card. Ms Cranney then made a file note which Ms Price reviewed and approved. 
In relation to the complaint that the Murrays were not given an opportunity to comment whether they ought to be suspended or not, Ms Price pointed out that she suspended them on full pay and that, although she did not “specifically” invite them to comment on the subject of the suspension, she did invite them to raise any questions or comments about the contents of the letter or the process and neither wished to take advantage of that opportunity. There followed two separate disciplinary meetings, both held on 20 March 2001. Mr Murray was the support person for Mrs Murray and Mr Murray's departmental trainer was Mr Murray's support person. 
Although complaints about that state of affairs were made only indirectly, there is something in the argument hinted at in cross-examination that people who have no experience of such matters and who are themselves employees of the same employer may not be of much use to the employee who is under investigation. It is not enough to tell employees that they are entitled to some representation; rather, they should be told that it is in their interests to obtain competent representation. That apart, however, Ms Price conducted the disciplinary inquiry with meticulous care to ensure that it should be procedurally fair. She caused a note of the proceedings to be made in each case and gave each of the plaintiffs an opportunity of reviewing the note and making changes to it, as they did. There was no real criticism of the process other than perhaps to suggest mildly that it was unduly rapid. But such inquiries should not, in general, be drawn out unless there is a need to pursue some further line of inquiry suggested by the employee or emerging from the employee's answers. That was not the case here. 
In relation to the suspension, Ms Price agreed on request that the official version, if anyone should ask, would be that the Murrays were on special leave. She said that she would consider all that had been said to her. She says that she obtained legal advice and came to a tentative decision. She then telephoned the Murrays and asked them to come in and meet with her again. They did so on 22 March 2001. On this occasion Ms Price advised them that she had considered all the information they had provided. She said that, given the nature of the offences they had been charged with and the fact they had pleaded guilty, she was considering dismissal; but before making a final decision she wanted to give them a last opportunity to provide her with any further information they considered to be relevant. Both advised they had nothing further to add. She then took a 5-minute break to consider her decision further and, on her return, told them that she felt she had to dismiss them. The reason that she gave was that dismissal was necessary for the protection of the integrity of the tax system and that fraud by an employee of IRD, albeit not at the department, was behaviour likely to bring it into disrepute. She said that she considered the matter fell into the category of serious misconduct which warranted summary dismissal. However, because of their circumstances and being aware that they had children, she told them that she would pay them each 2 weeks' notice although they were required not to work out the period of notice. She assured them that she had not made the decision to dismiss them lightly and that she had appreciated their cooperation in the investigation. She also told them that if they felt aggrieved by any action the department had taken they were entitled to pursue a personal grievance as outlined in their employment agreements. She offered them copies of the notes of the meeting of 20 March 2001 but this offer was, at that stage, declined. Ms Price said that she felt some anguish over her decision but it seemed to her that the Murrays remained calm throughout. She confirmed her decision in writing on 26 March 2001. On 4 April 2001 the plaintiffs, through their solicitor, submitted a personal grievance. A response was prepared by Ms Rapley and sent to Mr Bartlett. The parties attended mediation in August 2001 but without success. 
Against that simple factual background, the case for the plaintiffs was that they could not be dismissed for serious misconduct when the misconduct in question occurred some months before they ever became employees of the department. For its part, while acknowledging the force of that argument, the department contends that it is entitled to have regard to inappropriate conduct no matter where or when it occurred although acknowledging that historical or ancient conduct would carry less weight than recent or current unacceptable behaviour. 
To put that contention in its full context, it is necessary to go back in time to the process the Murrays went through before securing employment with the defendant. 
The narrative begins with form IR 811, the application for vacancy. An instruction on that form shows that it is required to be completed by all internal and external applicants. It prominently displays on the front page under the heading “Note to External Applicants” the following statement: 
“Preferred applicants will be required to undergo a security check in respect of their criminal, tax, child support and student loan records. ”
“Offers of employment are conditional on the completion of these checks to Inland Revenue's satisfaction …  ”
A copy of what is described as the department's criteria was attached to this form and I will return to that. The form goes on to say: 
“If you are shortlisted for this position you will be given the opportunity to discuss any concerns you may have regarding your acceptability with the panel chairperson. 
A conditional contract of employment may be terminated if an issue that falls outside of Inland Revenue's criteria is highlighted by the check, and this issue cannot be satisfactorily resolved in discussion with you. Completion of the checks can sometimes occur after commencing work with Inland Revenue. ”
Attached to the form is a sheet of paper which must be a statement of the defendant's criteria but is headed “Offence Notes”. This clearly sets out seven categories of offences which are then discussed under two headings, “Generally Acceptable” and “Generally Not Acceptable”. The first three categories are offences against the Crimes Act 1961, the Accident Insurance Act 1998 (relating to fraud), and the Social Security Act 1964 (relating to benefit fraud). It is made clear in relation to this group of three categories that, if the applicant had been sentenced to a term of imprisonment, he or she would be generally not acceptable, but if sentenced only to a fine or periodic detention, community service, or lesser penalty that would be generally acceptable provided the last offending occurred more than 10 years earlier. Although the position is not entirely clear, this acceptability seems not to apply if the fine or lesser penalty related to an infringement of s 127 of the Social Security Act 1964. 
Form 811 asked: “Do you have any existing (or pending) criminal convictions? Yes No.” Each of the plaintiffs truthfully and accurately (as the defendant admits) circled the answer “No”
The next step was the department's form IR 815 “Advice to applicants”. This made it clear, once again, that all appointments of a person from outside the department were subject to checks to its satisfaction for suitability of appointment regarding criminal records. This explains: 
“In respect of any previous criminal convictions it is not intended that all people with a criminal record be barred from being appointed to vacancies in the Department. There are convictions that will have no bearing on a person's general acceptability for employment. These may include convictions for minor offences only or offences over ten years old, where no repeat offence has occurred. No record of any conviction is held on personal files or is used for any other purpose. ”
Each applicant is required to sign a declaration acknowledging receipt of the advice and confirming understanding and acceptance of its terms. The plaintiffs signed this form. 
There followed the letter offering employment which stated that the employment was to be based on the terms and conditions set out in the letter and in an enclosed employment agreement. This letter also makes it clear that, if the offer contained in it is accepted, the appointment will be conditional on a satisfactory check of criminal records. The advice goes on to say that, if the department is not satisfied with the result of these checks, the contract of employment will be terminated immediately without payment for notice. The letter goes on to say: 
“In accepting this offer of employment, you are acknowledging that you have been advised of this condition fully, and that you understand that the checks may not be completed until after you have started working with Inland Revenue. ”
The accompanying agreement consisted of a two-page document of special terms and a 40-page document of general conditions. Clause 4(c) of the two-page document again repeats that the offer of employment is conditional on satisfactory criminal record and other checks being carried out, and repeats the provisions of the letter of appointment. There is also a form which the plaintiffs signed called “Inland Revenue Employee Acknowledgement of Offer of Employment”
Each of the plaintiffs was also sent a letter headed “Induction Procedure” which sent them an induction pack and, at the beginning of the induction, the plaintiffs were given the IRD code of conduct of which they acknowledged receipt. This contained at p 19 a statement about personal activities including an explicit reference to “Offences against the law involving breach of trust or which may bring discredit to IRD … ”
Although there was no specific evidence on the point, I infer that the defendant carried out a check of criminal records and that it was satisfactory. 
The case was eloquently argued by experienced counsel. It is only too easy to acknowledge the strength of the arguments advanced on both sides. On the one hand, it is already an exceptional situation in the law of contract that employees can be dismissed for misconduct judged on moral grounds entirely unrelated to the quality of their performance of the duties they are contracted to discharge. On the other hand, the high traditions of the New Zealand public service and the particularly rigorous requirements imposed by law on the Inland Revenue Department would seem to go a long way towards justifying its stance that it could not continue to employ the plaintiffs once it knew of their offending, if only because for it to do so could expose it to considerable criticism and disaffection among other staff or, at worst, could begin to undermine the system or culture of voluntary compliance that ensures that taxpayers in this country pay the correct amount of tax with minimum supervision or enforcement. 
For Mr and Mrs Murray 
Mr Bartlett relied on the principle declared by the House of Lords in Bell v Lever Bros Ltd [1932] AC 161, especially in the speech of Lord Atkin, holding that a contract of service is not a contract of the utmost good faith, with the consequence that there was no obligation to disclose all material facts. Mr Bartlett pointed out that this rule had been consistently applied by New Zealand Courts and in the employment jurisdiction, subject to the qualification that this rule does not extend to providing false information when asked at the selection stage. He relied on the ruling of the Industrial Relations Commission of New South Wales in the case of Hollingsworth v Commissioner of Police (1999) 47 NSWLR 151 where it was held that it is for the prospective employer to design and ask the questions thought to be necessary to establish suitability for the position and not up to the employee to volunteer adverse information about himself or herself. 
In the present case the plaintiffs were asked whether they had any convictions or pending prosecutions and were truthfully able to answer no. Mr Bartlett pointed out that the Authority rejected the notion of serious misconduct but still upheld the dismissal by reasoning that the plaintiffs' conduct had resulted in an irreconcilable breakdown of trust and confidence. Mr Bartlett criticised that view as undermining the principle in Bell v Lever Bros Ltd. He pointed out that it would be only too easy for an employer to allege loss of trust and confidence upon discovering some past misconduct which had not been the subject of any questioning at the selection stage. Mr Bartlett also cited another Australian case, Gill v Colonial Mutual Life Assurance Soc Ltd [1912] VLR 146; (1912) 18 ALR 140 where the dismissal took place upon the discovery of previous historical dishonesty occurring more than 10 years before the employment started. To the extent that the Authority relied on Reid v NZ Fire Service Commission [1999] 1 ERNZ 104; (1999) 5 NZELC 95,928 (CA) at p 107; p 95,930, Mr Bartlett submitted that a situation such as this was not contemplated by the Court of Appeal's judgment in that case. 
In relation to the suspension grievance, Mr Bartlett submitted that the Authority correctly applied this Court's judgment in Tawhiwhirangi v A-G in respect of the Chief Executive, Dept of Justice [1994] 1 ERNZ 459
For the Attorney-General 
Mr Gunn, relying on W & H Newspapers Ltd v Oram [2000] 2 ERNZ 448; [2001] 3 NZLR 29 (CA) at p 457; p 37 argued that the plaintiffs had not established a prima facie case of unjustifiable dismissal but, in the alternative, accepted that it was for the employer to show that a full and fair investigation disclosed conduct capable of being regarded as serious misconduct. He accepted as appropriate the test formulated by the Court of Appeal in Airline Stewards & Hostesses of NZ IUOW v Air NZ Ltd (1990) ERNZ Sel Cas 985; [1990] 3 NZILR 584 (CA) that the real test is whether the employer has shown that the decision to dismiss was, in the circumstances and at the time, a reasonable and fair decision. He said the case for the department was that the decision to dismiss the plaintiffs was one that was open to a reasonable and fair employer. He argued that the departmental employees work in the unique environment of tax gathering under the umbrella of strict statutory requirements such as s 6 of the Tax Administration Act 1994 which provides: 
“6. Responsibility on Ministers and officials to protect integrity of tax system 
Every Minister and every officer of any government agency having responsibilities under this Act or any other Act in relation to the collection of taxes and other functions under the Inland Revenue Acts are at all times to use their best endeavours to protect the integrity of the tax system. 
Without limiting its meaning, ‘the integrity of the tax system’ includes— 
Taxpayer perceptions of that integrity; and 
The rights of taxpayers to have their liability determined fairly, impartially, and according to law; and 
The rights of taxpayers to have their individual affairs kept confidential and treated with no greater or lesser favour than the tax affairs of other taxpayers; and 
The responsibilities of taxpayers to comply with the law; and 
The responsibilities of those administering the law to maintain the confidentiality of the affairs of taxpayers; and 
The responsibilities of those administering the law to do so fairly, impartially, and according to law. ”
Mr Gunn relied also on s 81 of the Tax Administration Act 1994 imposing a duty on departmental officers to maintain secrecy. He also argued that the plaintiffs worked in the public sector calling for high standards of integrity and conduct. He referred me to my judgments in NZ PSA v Iwi Transition Agency [1991] 3 ERNZ 147, at p 161, and Armstrong v A-G [1995] 1 ERNZ 43, 69 as examples of the Court acknowledging these standards. He drew attention to the New Zealand Public Service Code of Conduct and in particular to the third guiding principle that public servants should not bring their employer into disrepute through their private activities. He relied very strongly on the reservation in each offer of employment that the employees' employment would be conditional upon a satisfactory check of criminal records with the caveat that such checks may not be completed until after the employment had started and that, if the department is not satisfied with the result, “your contract of employment will be terminated immediately, without payment for notice”
In addition, applicants for positions are informed from the outset of the kinds of convictions that will “generally” preclude employment and these include convictions of the type that the plaintiffs sustained. Mr Gunn submitted that the department was justified in having an honest and reasonable belief that serious misconduct warranting summary dismissal had occurred. He argued that conduct outside work can often provide justification for dismissal. He pointed to cases such as NZ Bank Officers' IUOW v BNZ [1984] ACJ 641, and Smith v Christchurch Press Co Ltd [2000] 1 ERNZ 624; [2001] 1 NZLR 407 (CA) at pp 630-631; p 413. 
Mr Gunn submitted that the plaintiffs' argument that they could not be dismissed because their conduct occurred before they were employed was misconceived. Their behaviour was relevant to the department's business and was likely to expose it to disrepute. Mr Gunn argued that the Authority's determination that the act of benefit fraud was the action that constituted serious misconduct was both artificial and incorrect but, if the Court found that the behaviour occurred before the employment commenced, the department was entitled to take action in respect of it, which is only a slight modification of the test enunciated in the Christchurch Press case where it was held that what was relevant was not where the conduct occurred but, rather, its impact or potential impact on the employer's business. 
Mr Gunn submitted that, in an age when importance is placed on employee fidelity and trust, the serious nature of the plaintiffs' offending and the recency of its occurrence are all factors justifying the defendant's decision that the plaintiffs had been guilty of serious misconduct warranting summary dismissal. However, the defendant also supported the alternative ground that found favour with the Authority of irreconcilable breakdown of trust and confidence because the plaintiffs were about to plead guilty to three charges of benefit fraud each (although, in the event, one of the charges against each of them was withdrawn). 
Turning to the suspension grievances, Mr Gunn attacked the decision saying that this was not a case like Tawhiwhirangi and that, in effect, the absence of consultation made no difference to an outcome that was inevitable and the effects of which were negligible. 
To determine what is the issue requiring resolution is a straightforward matter. Much more so than the task of resolving that issue. It is, in terms of the statute, whether the defendant employer has shown that the dismissal of the plaintiffs was justified. I do not accept Mr Gunn's submission that the decision in Oram has, without saying so, altered the well established rule which has stood over since the Court of Appeal's decision of Wellington Road Transport etc IUOW v Fletcher Construction Co Ltd (1982) ERNZ Sel Cas 10; [1982] ACJ 663 approved the practice developed by the Arbitration Court. That practice was that, although an initial onus in the legal sense may be said to rest upon an employee to put forward a prima facie case of grievance, that initial responsibility is likely to be sufficiently satisfied once the fact of the dismissal has been established, together with the surrounding circumstances relied on as reason for the complaint of lack of justification. Such a rule is also supported by, and intended to acknowledge the provisions of, ILO Convention 158 on the Termination of Employment at the Initiative of the Employer providing in art 9 that the burden of proving the existence of a valid reason for the termination shall rest on the employer.4
| X |Footnote: 4
This convention has not been ratified because of its requirement of notification of redundancies to “the competent authority” but its provisions have otherwise been given substantial effect in New Zealand domestic law. 
In this case, to the extent that a prima facie case had to be established, this was satisfied by the defendant's admission that it had dismissed the plaintiffs otherwise than by giving them at least one month's notice of termination as required by their employment agreements. There is an exception there in the case of serious misconduct and it is for the employer to establish the serious misconduct that is relied on, if it is. The question must always be whether dismissal on the terms effected was open to a fair and reasonable employer at the time and in the circumstances. The answer depends so much on the employer's state of mind and knowledge that it is only fair that the employer should be required to establish the nature and quality of the reasoning that induced it to act to the employee's detriment. 
In any event, when the defendant elects to call evidence, arguments based on the technical burden of proof are of little help. The Court's task is to assess the evidence and make up its mind where the justice of the case lies, in terms of the relevant law. 
The law is quite clear, although it may not seem ideal. This was not a case of serious misconduct justifying dismissal for the reasons outlined by Mr Bartlett. It is at least implicit — but, I think, also explicit — in cases such as Clouston & Co Ltd v Corry (1905) NZPCC 336; [1906] AC 122 (PC) decided by the Privy Council, and North Island Wholesale Groceries Ltd v Hewin (1982) ERNZ Sel Cas 27; [1982] 2 NZLR 176 (CA) decided by the Court of Appeal, and in many cases in the personal grievance jurisdiction, that the serious misconduct that can be a ground for summarily dismissing employees must be misconduct that occurred temporally while the employment contract was on foot although it need not have occurred literally during working hours. An employer cannot say, in reliance on some past or historical conduct, that that represents misconduct in employment. One thing that an employer can do is to treat any pre-contractual misrepresentation as vitiating the contract and so cancel it as is provided for by the Contractual Remedies Act 1979. It is common ground in this case that no such misrepresentation, innocent or fraudulent, was made by the plaintiffs. It may well be that the defendant can so arrange its recruitment processes as to define an applicant's fitness for the position in such a way as to enable it to say that supervening discovery of the absence of some quality is a breach of a representation that the employee possessed it. And it can no doubt ask applicants for employment whether they know of any circumstances that might lead to their being prosecuted for any crime under the taxation and welfare legislation. But these counsels of perfection were not followed in this case which has to be decided upon its facts, not on what might have been and perhaps ideally should be in the future. 

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